Mortgage lender Halifax have announced that they will be increasing their minimum mortgage size across their 2-year and 5-year fixed products for selected panel mortgage intermediaries. The Halifax minimum mortgage amount has historically been £25,000 for most borrowers with some other lenders offering even lower minimum mortgages. However, Halifax Intermediaries has upped it’s minimum loan size to £100,000 on two- and five-year remortgage products available exclusively through selected brokers.
What Does The Halifax Minimum Mortgage Amount Increase Mean?
Although they haven’t yet made any definitive comments on the move, it is pretty plain to see that in this struggling economy of rising inflation and cost of living, Halifax want to focus on the larger borrowing and potentially more wealthy clients. It seems that they want to distance themselves from smaller, more insignificant (in the big scheme of their borrowing) loans and potentially lower income buyers purchasing cheaper properties. They want to focus more on the larger and more affluent clients. Halifax want to try and make sure that business and profit keeps on coming in over the next few months and years.
The fear it seems is that the less affluent mortgage clients who are more heavily hit by the cost of living increase, may struggle to keep up with their mortgage repayment bills and therefore increase the risk with the lender. Finance experts across news outlets concur and similar moves can be seen with other lenders.
What Are Other Lenders Doing?
Last week, NatWest made changes to their lending limits for more affluent mortgage borrowers. They now offer people who earn more than £75,000 a year a mortgage of up to five-and-a-half times their annual income. Again, although not specifically commenting on this move and their motives, it is clear to see that NatWest are trying to incentivise the higher income clients and discourage people on lower incomes who may struggle during the economic turmoil.
NatWest also increased its maximum loan size for wealthy borrowers, those with a 40% deposit can now borrow an unlimited amount. A £10m lending cap previously applied. Customers with a 20% or 15% deposit can borrow up to £2.55m, an increase of £1.55m, and those with a 10% deposit can borrow £200,000 more, up to £750,000.
What Do The Mortgage Experts Say?
London based mortgage and protection brokerage Oportfolio have clients from all kinds of backgrounds and annual incomes. Some of their clients are high earning business owners and others are people just starting off on their journeys in their chosen careers. To them, these new changes from Halifax and other lenders are both a blessing and a curse. Halifax, by increasing their minimum mortgage size, have pulled a smart move. Without overtly saying it, they have narrowed their client pool slightly so that the overall demographic of their clients has changed.
Now that they have increased the minimum loan size to £100,000 they can be confident that their clients will be earning at least £22,500 a year joint or sole salary. Although below the national average salary, it is a big jump up from when the minimum loan size was £25,000 meaning that a client would need to earn a minimum of £5,500 jointly or on their own! Unfortunately its a sad reality that people who earn 4-figures a year are more likely to be in a less stable job and therefore less stable financially to handle a mortgage and other credit commitments. Although it does not seem like a huge jump, this move with dramatically change the bank’s business and income structure.
NatWest and other lenders changing criteria to benefit the wealthier borrowers also incentivises and ostracises. Ultimately its the lower income borrowers who need to be able to borrow more to afford the ever increasing price of properties. Generally, mortgage lenders lend 4.5X income with adjustments made for credit commitments and dependents etc. So for example, someone earning £30,000 a year could potentially borrow around £135,000 and someone who earns £100,000 a year could borrow around £450,000.
However, NatWest have increased borrowing income multiples to 5.5X income for people earning £75K or more a year. That’s over £45,000 more than the average annual salary in the UK. Meaning that the higher earners in the UK are not only already able to borrow way more than the lower borrowers, but can now potentially borrow up to 5 and a half times their income. To use the same example above, while a person earning £30,000 a year could borrow £135,000. Someone earning £100K a year can not only borrow at least £315,000 more but can potentially borrow up to £550,000.
As we’ve already mentioned, we have clients who who are high net worth and clients who earn less. We do not discriminate and our job is to help our client, whomever they be, to get the right mortgage and protection for their circumstances. Although these new changes will mostly benefit the higher earners in our client bank, there are plenty of lenders still catering to lower income borrowers as standard and we have access to all of them so please don’t let these new changes discourage you.
If you or anyone else you know is interested in the new changes to Halifax and NatWest’s borrowing criteria, or are just interested in seeing what mortgage might be available to you, please give our friendly advisor team a call today.